Contributed by Kenny Loh, Wealth Advisory Director, Financial Alliance Pte Ltd
(The contributor can be contacted at kennyloh@fapl.sg)
For Singaporeans planning for their golden years, crafting a robust retirement portfolio is crucial. While traditional options like stocks and bonds hold merit, Real Estate Investment Trusts (REITs) offer a compelling set of advantages specifically suited to retirement goals. Here are six key reasons why REITs should be a part of your retirement plan in Singapore:
Unlike physical properties, REITs boast superior liquidity. Units can be readily bought and sold on stock exchanges, providing you with quick access to cash. This is especially valuable during retirement when unforeseen medical expenses or other emergencies might arise. A strategically-designed REIT allocation within your portfolio can act as a buffer, ensuring you have the funds you need without having to sell off other, potentially long-term, investments.
Singaporean retirees often seek reliable sources of income to maintain their desired lifestyle. REITs excel in this area, typically offering dividend yields ranging from 5% to 9%. This compares favourably to other yield-generating asset classes in Singapore, such as savings accounts or bonds, which often have much lower returns. With a well-chosen REIT portfolio, you can enjoy a steady stream of income that supplements your pension and social security benefits.
REITs in Singapore come with significant tax benefits that can significantly boost your overall returns. Distributions from REITs are largely tax-exempt, meaning you get to keep more of the income generated by your investment. This stands in stark contrast to physical property ownership, which incurs taxes on rental income and potential capital gains. Furthermore, REITs free you from the various costs associated with physical properties, such as property tax, agent commissions, and maintenance fees. This translates to a lower total cost of ownership and allows you to maximise your returns.
Managing physical real estate can be a time-consuming and demanding task. From finding tenants and dealing with repairs to collecting rent and overseeing maintenance, the responsibilities can quickly become overwhelming. REITs, on the other hand, offer a completely hands-off approach. A professional management team takes care of all the day-to-day operations, allowing you to relax and enjoy your retirement without the burden of property management.
A well-structured REIT portfolio provides excellent diversification benefits. REITs can be categorised by property type, such as office, retail, industrial, or hospitality. They can also be geographically diversified, encompassing assets in Singapore and abroad. This diversification helps mitigate risk by ensuring your portfolio is not overly reliant on the performance of a single property sector or location. A diversified REIT portfolio offers stability and reduces the impact of any downturn in a specific market.
REITs hold the potential for capital appreciation alongside their income generation. As the underlying assets of REITs are real estate, their value tends to rise over time, especially during periods of inflation. This inflation-hedging characteristic makes them a valuable asset class for retirement portfolios, as it helps preserve the purchasing power of your savings over the long term.
While REITs offer numerous advantages for Singaporean retirees, it’s crucial to remember that, like any investment, they come with inherent risks. Market fluctuations and changes in interest rates can impact their performance. Therefore, conducting thorough research and consulting a financial advisor is essential before investing in REITs.
By carefully selecting REITs that align with your risk tolerance and investment goals, you can leverage their unique benefits to build a secure and income-generating retirement portfolio in Singapore. REITs offer the potential for a steady stream of income, tax advantages, diversification, and capital appreciation, all wrapped up in a convenient and hassle-free package.
As you plan for your golden years, consider giving REITs a prominent place in your retirement strategy.
Kenny Loh is a seasoned REITs specialist, and a Wealth Advisory Director of a Singapore largest independent Financial Advisory firm. He specialises in retirement and estate planning, and he guides clients in building diverse investment portfolios, including REITs and other assets, to secure long term sustainable returns. Kenny is also a Certified Financial Planner and SGX Academy REIT Trainer. He shares his market analysis and knowledge at major investment events.
Photo by Towfiqu barbhuiya
Important: The information and opinions in this article are for general information purposes only. They should not be relied on as professional financial advice. Readers should seek independent financial advice that is customised to their specific financial objectives, situations & needs. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.
Kenny Loh is a distinguished Wealth Advisory Director with a specialization in holistic investment planning and estate management. He excels in assisting clients to grow their investment capital and establish passive income streams for retirement. Kenny also facilitates tax-efficient portfolio transfers to beneficiaries, ensuring tax-efficient capital appreciation through risk mitigation approaches and optimized wealth transfer through strategic asset structuring.
In addition to his advisory role, Kenny is an esteemed SGX Academy trainer specializing in S-REIT investing and regularly shares his insights on MoneyFM 89.3. He holds the titles of Certified Estate & Legacy Planning Consultant and CERTIFIED FINANCIAL PLANNER (CFP).
With over a decade of experience in holistic estate planning, Kenny employs a unique “3-in-1 Will, LPA, and Standby Trust” solution to address clients’ social considerations, legal obligations, emotional needs, and family harmony. He holds double master’s degrees in Business Administration and Electrical Engineering, and is an Associate Estate Planning Practitioner (AEPP), a designation jointly awarded by The Society of Will Writers & Estate Planning Practitioners (SWWEPP) of the United Kingdom and Estate Planning Practitioner Limited (EPPL), the accreditation body for Asia.
